The Top Options for Financing a Real Estate Investment

Today, there are more options for financing a real estate investment than ever before. The best financing option for the situation depends on the type of property being purchased, the condition of the investment, and the amount a person needs to borrow. Investors who are new to real estate purchases may have fewer options.

However, as their portfolio continues to grow, new options become available. This may make it possible to meet the needs of a certain fix-and-flip investment or a rental investment. For those who are learning about the financing options available, keep reading.

Investment Property Mortgages

Conventional mortgages tailored to an investment property may be the right option for someone new to real estate investing. An investment property mortgage works like a first mortgage someone takes out on their home. Remember, though, the lending requirements for these are often more stringent and the interest rates are often higher.

Sometimes, borrowers can find loans that require just 10 percent own for owner-occupied properties. However, the person may pay even less is they are approved for an FHA loan. But, in most cases, this type of loan will require a down payment of 20 percent, with loans for multifamily properties requiring down payments of up to 30 percent.

Government-Backed Loans for Real Estate Investors

Many homeowners opt for a VA or FHA loan, which is both backed by the government to purchase their first home and additional owner-occupied properties. This type of loan is appealing because it offers lower interest rates and lower down payments that are often just 3.5 percent.

If a person has a credit score of at least 580, they may be able to qualify for an FHA loan with a 3.5 percent down payment. Borrowers who have scores between 500 and 579 may still be able to qualify if they have a 10 percent down payment. It will be necessary for a person to pay the mortgage insurance premiums on top of the taxes, interest, and principal if they are putting down under 20 percent.

A Home Equity Loan or Home Equity Line of Credit

If a person doesn’t have six months of cash or liquid assets to back the investment property mortgage, they may wonder what options are available to them. A person in this situation can opt to borrow against the equity they have in their main residence. They can use a HELOC or a home equity loan to finance the purchase of an investment property.

Remember, though, any time money is borrowed against a home, there is the risk that the property owner will lose it if they are unable to make the payments. Be sure to keep this in mind.

If a person needs more help or information about what to do when trying to finance an investment property, they can reach out to the professionals. There is also more information available for those who are interested at Dustin Dimisa's LinkedIn page. Being informed and knowing what options are available is the best way to ensure the right financing option is used for investment property purchases.

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